WEDC Board members frustrated by continuing problems, lack of communication

Members of the board of the Wisconsin Economic Development Corp. expressed frustration during a special meeting in Waukesha to review a critical audit.

Some citizen members of the WEDC board raised concerns about communication between management and the board on important issues. And legislative members cautioned that frustration with the agency is hitting a peak after a recent audit pointed out numerous failures in its first year of operation.

The board reviewed the Legislative Audit Bureau report in a three-and-a-half hour meeting on Wednesday during which staff and board members were briefed on how the public-private agency was solidifying policies, updating IT software and assessing proper credit risk when handing out loans.

Rep. Jeff Stone, R-Greendale, said while he believes many of the accountability issues raised in the LAB report are being fixed, he expressed concern that fixes need to occur faster. This was after he said the timeframe for assuring compliance with state statutes seemed to be stretching out too long.

“I see this as an organization that is in intensive care and we need to have dramatic improvement quickly,” Stone said.

In a point-by-point response to the LAB audit, WEDC staff argued that most of the state statute violations alleged by the LAB were simply instances of following old Commerce policies.

“All the projects cited were reviewed and approved in the transition period from Commerce to WEDC,” the response read. “In order to maintain operational continuity, WEDC continued to operate under Commerce program rules for the first 4-6 months of FY12. WEDC began approving and implementing its program guidelines after Board approval of its Strategic and Operating plans in late Fall 2011.”

The response also said WEDC set aside six months worth of reserves for operations costs.

* Read the point-by-point response

LAB reported that WEDC had $28 million in funds left over from the 2011-12 year that it had “neither spent nor committed contractually to spend on grants.” But WEDC said part of that was due to reserves. It also said that when taking into account projects in the pipeline — which includes soft offers and planned expenditures — there are only $7 million of WEDC funds that are either set aside in reserves for “continued operations” or uncommitted to economic development projects.

WEDC said it sets aside about half of its yearly operations budget in the event that something happens to stop funding the agency, such as the Legislature not passing the biennial budget on time.

Despite some similarities between WEDC’s existing balance and the UW System’s surplus, Gov. Scott Walker said he wasn’t concerned over the WEDC reserves as long as they were being used for the purpose of economic development in the end.

“The difference in each of these cases, and part of the frustration that lawmakers have expressed, is that this was transparent,” Walker said. “Laying out a clear plan for what they have and why is different than what you had at the University of Wisconsin System.”

Two citizen members, Attorney C. Thomas Sylke and FluGen CEO Paul Radspinner, expressed frustration that WEDC managers hadn’t properly communicated with the board on past matters. Sylke asked WEDC management and the rest of the board for guidance on what additional role the board should have.

Radspinner expressed concern that WEDC’s response to red flags raised by the U.S. Department of Housing and Urban Development wasn’t communicated properly from old management staff and wanted to make sure similar situations didn’t come up in the future.

“I found out walking into the office of my company from my administrative assistant that we were on the front page, and the communication has got to be better and there were an arrogance as to how it was reacted to,” Radspinner said.

WEDC chief Reed Hall responded that any pressing issue would be quickly shared with the board.

“There’s no other way to run a company,” Hall said.

— By Jason Smathers